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Telecom
November 2019 www.intellinews.com I Page 16
Russian mobile operator Tele2 valued at $3.7bn ahead of Rostelecom deal
The shares of Russian integrated telecom major Rostelecom will be valued at RUB93.21 for
the additional issuance used in the swap deal with VTB Bank, which will allow Rostelecom
to gain 100% control in Tele2 mobile operator, Kommersant daily reported on November 12 citing the approval by the government.
As reported by bne IntelliNews, Rostelecom recently announced the terms of restructuring that will allow it to consolidate 100% in Tele2.
The swap agreement with the other Tele2 shareholder, Tele2 Russia Holding AB (joint venture with VTB), will exchange 10% of Rostelecom common shares for a 10% stake in Tele2, with the remaining 45% in the mobile operator paid in cash.
Under the approved share price, the additional share issue will be worth about RUB66bn, making the value of the 55% stake in Tele2 RUB132bn and the value of 100% of equity at RUB240bn ($3.7bn). Notably, the share price of Rostelecom’s issue carries an 11% premium to the current market price, Uralsib Capital analysts estimated.
The deal’s pricing also means that Rostelecom might have to make an additional cash contribution of RUB42bn, which could increase its IFRS net debt/EBITDA from the current 2.1 to 3.5x (excluding the Tele2 consolidation), Sberbank CIB noted on November 13.
Sberbank estimates the Enterprise Value of
Tele2 under the deal at RUB379bn given the reported net debt/EBITDA of 1.9x. That would imply a 2019E EV/EBITDA for Tele2 of 5.7x, versus 3.5x for Rostelecom itself and 4.2x for another mobile major MTS.
Tele2 and Rostelecom united their GSM assets in 2014 by creating the T2 RTK Holding joint venture that later began operating in the Moscow region as a discount operator. Already back in 2017 Rostelecom said it will seek full control in Tele2, after Michael Oseevsky, ex-chairman of VTB, was appointed CEO of the state-owned operator.
The plans of Rostelecom to consolidate Tele2, while turning it from a GSM discounter to the fourth major mobile operator, were first met with caution by the analysts. But the mobile runner-up turned the corner in 2018 and continued to deliver strong results in 2019.
Rostelecom reported 12% year-on-year net profit increase in 3Q19, continuing to get support from Tele2, as well as from the B2B and the B2G segments.
Nevertheless, “despite Tele2's faster growth, the rather significant premium to Rostelecom and MTS is not justified, in our view, while the cash contribution has negative implications for Rostelecom's FCF, leverage and dividends,” Sberbank CIB warns.